Not only is the system open to cheats, according to childcare groups, but providers lose out if low-income parents get into financial difficulties.
Rosemary Murphy, chief executive of the National Day Nurseries Association, feared the system was fracturing the relationship between parents and providers. Some nurseries were writing off debts rather than pursue cash-strapped families.
Sarah Jackson, chief executive of Working Families, said many parents were struggling to negotiate the "terribly complicated" application process and were then treated unsympathetically by the Inland Revenue when a problem arose.
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